NRI investment in a private limited company is fast becoming a trend, with more and more people opting to invest their money in such a manner. A common doubt we hear is whether investment by NRI in an Indian company is possible or can an NRI invest in Indian private limited company? Further, with the simplification of the procedure, we also receive several queries regarding Indian company registration for NRIs. So, in order to make things clearer, and to ensure that you are familiar with the latest rules and regulations, we have gathered all the essential information you will need regarding NRI investment in private limited company.
What Are Private Limited Companies?
Private Limited Companies are those that are managed and run by a group of private individuals or an individual. These companies do not announce or offer shares in the market or trade in the stock exchange, as is done by Public Limited Companies. Another feature that distinguishes a private limited company from a public limited company is the number of shareholders. Essentially, a minimum of two investors are required for a private limited company, and a maximum of fifty investors are allowed.
What Is Your Residential Status For The Current Year?
Before going into the details of how can an NRI can invest in a private limited company in India, you should first be clear about your residential status for the year. You will be considered an NRI for a financial year if you meet the following criteria:
- You have not resided in India for more than 182 days ( or 6 months) in the current financial year
- You have not resided in India for more than 365 days in the past 4 years and not more than 182 years in the current financial year.
If you meet either of the above criteria, you are considered an NRI for that financial year. Once you know your current residential status, you can be sure whether to invest in India as an NRI or whether you will be considered a resident for the current financial year.
Can An NRI Invest In Indian Private Limited Company?
The short answer to this is a resounding yes. Non-Resident Indians are welcome to invest in a private limited company if they wish to do so. NRIs are permitted to subscribe to the Memorandum and Article of Association and take up company shares for the incorporation of a business. Thus, NRIs can make direct investments in a private limited company, without seeking a complicated approval procedure from the Reserve Bank of India. Further, in order to encourage investments by NRIs, the procedure for registration of a private company in India are also not overly complicated.
Things to Know Before Starting a Private Limited Company in India For NRI
Before you take the decision to invest in a private limited company in India, there are certain considerations and caveats you should keep in mind. We have made a list of all the essential information you must know as an NRI before investing in a private limited company in India. Here is the list.
- Need of Indian resident: With the passing of the New Companies Act, 2013, NRIs, PIOs, and OCIs are allowed to become the directors of a private limited company. However, there is a restriction in the Act, which states that at least one investor in the company has to be a resident of India. This means that as an NRI, you cannot start a company in India without partnering with an Indian resident.
- Notarization of documents from Indian Embassy: While incorporating a company, one of the first steps is to apply for a Digital Signature Certificate (DSC) in the name of the director and get the Directors Identification Number (DIN). If you are an NRI, and your current residential address is located abroad, then you will have to get your ID cards and proof of address notarized from the Indian embassy in your country of residence. This could be a further hassle and slow down the process a little.
- Address Proof for Registered Office: While incorporating your company, you will have to produce proofs of a registered office. These documents include gas/electricity bills, property tax receipts, and a No Objection Certificate. These may be difficult to provide if you are residing abroad. But, these are mandatory documents nonetheless.
What Is The Procedure of Registration of Private Limited Company in India?
The procedure for registering a private limited company in India is as follows:
- Obtain DSC: The first step is to obtain the Digital Signature (DSC) from a government-recognized certifying agency. This DSC is required for all subscribers and witnesses to the Memorandum and Articles of Association. This can be done online.
- Apply for DIN: The next step is to apply for Director’s Identification Number (DIN). It is mandatory for anyone who wishes to be a director. One DIN will suffice for all the directors, and you need not apply separately for everyone.
- SPICe or Form INC-32: This is a simplified proforma which will incorporate a company electronically. It serves three benefits, namely, getting the DIN, reservation of a company name, and incorporation of a new company.
- e-MoA(INC-33) and e-AoA (INC-34): This is nothing but the e-Memorandum of Association and the e-Articles of Association. This has been done to simplify the process in India.
- PAN and TAN application: This is the final step. Once this is processed, you will be assigned a Corporate Identity Number (CIN), and you can start functioning as a legal business in India.